China’s deal to buy natural gas from Russia comes at the expense of a growing number of liquefied natural gas producers as it may make their fuel shipped by tankers less competitive.
The accord will make planned LNG export projects less likely to be built because the additional Russian gas may cut prices, according to analysts at Societe Generale SA and Sanford C. Bernstein. The agreement gives China, the world’s biggest energy consumer, greater leverage when negotiating LNG contracts, said Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd., a consultant.
“All of a sudden, it’s going to be a very competitive gas market,” he said today by phone from London.
China increased imports of LNG jumped 27 percent last year to 18.6 million metric tons, making it the world’s third-biggest importer behind Japan and South Korea, according to the International Group of Liquefied Natural Gas Importers, a lobby group in Paris.
The agreement to provide 38 billion cubic meters of gas annually over 30 years via a yet-to-be-built pipeline increases the diversity of supplies available to China. The country currently imports LNG and gas via a pipeline from Turkmenistan.
“Likely beneficiaries are OAO Gazprom, Chinese gas distributors and related oilfield services companies while higher cost LNG projects will be less likely to be developed,” Neil Beveridge, an analyst at Sanford Bernstein in Hong Kong, said today in an e-mailed report.
Companies in the U.S. such as Houston-based Cheniere Energy Inc. and ConocoPhillips are developing projects to export LNG from North America to Asia, capitalizing on rising gas production from shale resources. LNG export projects are planned in Canada and East Africa.
“The deal changes the level playing field,” said Thierry Bros, an analyst at Societe Generale in Paris. “China has now secured some new gas at a competitive price. This means that new LNG” will need to be competitive with that to go ahead.
Qatar, the world’s biggest LNG producer, supplied China with 7.16 million tons of the fuel last year, the International Group of Liquefied Natural Gas Importers data show.
Qatar signed contracts in 2008 to sell a total of five million tons of LNG a year to China National Offshore Oil Corp. and PetroChina Co. Negotiations to supply an additional seven million tons a year haven’t yet yielded results.
Qatar is “going to have to compete on price,” said Sikorski. LNG “is going to have to be priced competitively to what they are getting through Russian pipes.”